Whilst we are all well acquainted with the idea that owning a house is a big part of what many would see as 'the Australian dream', this may be about to change, with millennials (many of whom still have their sights set on leasing) expected to represent 43% of buyers in the next three years.
Millennials are considered strategic, and many seem to have found the answer to living where they want whilst ensuring a certain level of financial security. With house prices still 31% higher than they were 5 years ago, buying a home near work in a bustling city (i.e. Sydney and Melbourne) often isn't feasible.
The answer? Rent a home in your ideal location and purchase an investment property in an affordable location.
Purchasing your first property
When buying your first property, it is easy to make the premature assumption that you will receive the First Home Owner Grant (New Homes) (NSW), as it has essentially been put in place to provide "a fair go for first home buyers". The First Home Owner Grant has always been a topic of heated debate, whether it be in parliament, the media or at the family dinner table, although it is important to remember that there is a difference between this and the First Home Buyers Assistance Scheme.
The First Home Owner Grant (New Homes) is, as the name suggests, only available to those purchasing a 'new home', which is defined as a residential property that has not been previously occupied, or sold as a place of residence. This definition also includes circumstances where homes have been substantially renovated, and where they have been built to replace demolished premises.
This grant is governed under the First Home Owner Grant (New Homes) Act 2000, whereas the First Home Buyers Assistance Scheme is under the Duties Act 1997, and is in place to support those purchasing both new and existing homes valued between $650,000 and $800,000.
To try and alleviate the stress felt by many first home buyers, the Federal Government announced in its 2017 Budget the introduction of the First Home Super Saver Scheme, which allowed first home buyers to salary sacrifice into their superannuation fund. Participating first home buyers can in turn apply to release their voluntary contributions along with associated earnings, resulting in a significant tax advantage.
For millennials on the lookout for their first investment property, all three schemes are enticing and do have the potential to provide a significant benefit. Unfortunately, things seeming too good to be true often are - and there is a catch: all three schemes have a residence requirement.
Put simply, this means that the property needs to be the purchaser's principal place of residence for at least 6 of the first 12 months that they own it. If this requirement isn't fulfilled, the owner must pay back the grant. The difficult decision that many millennials are forced to face relates to whether to live in the property for the required amount and take advantage of the government benefits, or whether it is better to find tenants to fill the property as soon as possible in order to ensure that any potential rental income is not forgone. This then becomes a number crunching exercise, in order for the first home buyer to determine what is likely to be a more viable option for their personal circumstances.
So, at the expense of living in big cities and utilising property investments as a method of financial security, millennials are struggling to reap government benefits. To the new generation of property owners, leasing is the new buying - although it is important not to forget that the millennial dream could turn into a nightmare if they find themselves dealing with situations where they have failed to understand exactly what they have entered into.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.